Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

42 Pages Posted: 22 Oct 2015

See all articles by Julio Pindado

Julio Pindado

University of Salamanca - Administration and Business Economics

Ignacio Requejo

University of Salamanca - Administration and Business Economics

Chabela de la Torre

University of Salamanca - Administration and Business Economics

Date Written: September/October 2015

Abstract

This study investigates the relationship between family control and corporate capital structure considering the dynamic nature of the debt policy and the ownership structure of family firms. Our results show that the sensitivity of debt to fluctuations in cash flow is less pronounced in family firms and highlight that family control increases the speed of adjustment toward target debt. Four dimensions of the family business model explain these results: deviations of voting from cash flow rights, the presence of a second blockholder in the company, involvement of family members in management, and the generation in charge of the business. The weaker negative impact of cash flow on debt is driven by family firms with no control‐enhancing mechanisms, companies with active family participation in management and family businesses that are still controlled by the first generation. By contrast, the more severe agency conflicts between owners and creditors in family firms with a second blockholder lead to more pronounced pecking order behaviour. Furthermore, the higher flexibility in corporate decision‐making of family firms managed by the family and under the influence of the first generation explains why family companies are able to rebalance their capital structure faster.

Keywords: family control, capital structure, speed of adjustment, second blockholder, panel data, Eurozone

Suggested Citation

Pindado, Julio and Requejo, Ignacio and de la Torre, Chabela, Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms (September/October 2015). Journal of Business Finance & Accounting, Vol. 42, Issue 7-8, pp. 965-1006, 2015. Available at SSRN: https://ssrn.com/abstract=2677425 or http://dx.doi.org/10.1111/jbfa.12124

Julio Pindado (Contact Author)

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain
+34 923 294640 (Phone)
+34 923 294715 (Fax)

Ignacio Requejo

University of Salamanca - Administration and Business Economics

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain

Chabela De la Torre

University of Salamanca - Administration and Business Economics ( email )

Campus Miguel de Unamuno
Salamanca, ES-37007
Spain

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